Crypto Futures and Institutional Interest: Looking in the Wrong Place

The following article originally appeared in Institutional Crypto by CoinDesk, a newsletter for the institutional market, with news and views on crypto infrastructure delivered every Tuesday.

Last week, the Cboe let its traders know that it would not be renewing its futures contracts on bitcoin.

This was taken by many as a sign that expectations of institutional interest in crypto assets were misplaced, and by some as a nail in the crypto coffin.

If a significant venue like the Cboe doesn't see a future in offering a product that institutional investors allegedly require, then obviously there's no demand, right? And if the institutions don't bring their money and legitimacy into the market, where is the much-needed liquidity going to come from?

First, the CME is larger than the Cboe Futures Exchange, and in commoditized markets, size matters.

The suspension of one particular type of bitcoin futures contract usually says more about product structure than the underlying commodity and is far from an isolated incident.

By some estimates, more than half of futures launches fail to reach critical mass, and simply fade away.

The eventual launch of Bakkt and ErisX, which plan to offer physically-settled bitcoin futures, will bring an alternative product into the institutional toolbox.

Those that expect physically-delivered futures to be the trigger that brings institutional players into the market in volume are likely to be as disappointed as those that expected cash-delivered futures to perform that feat.

To steal a phrase from Hemingway, the involvement of institutional investors in crypto assets will happen "Gradually, then suddenly." As almost all profound changes do.